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COPT Establishes 2018 and 1Q18 Guidance

COLUMBIA, Md.--(BUSINESS WIRE)--
Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC)
is establishing the following guidance ranges for the year ending
December 31, 2018:

Diluted earnings per share (“EPS”) in the range of $0.55−$0.65

Diluted FFO per share (“FFOPS”), as defined by NAREIT and as adjusted
for comparability, in the range of $1.95−$2.05

For the quarter ending March 31, 2018, the Company is establishing the
following guidance ranges:

EPS in the range of $0.13−$0.15

FFOPS, as defined by NAREIT and as adjusted for comparability, in the
range of $0.48−$0.50

“Having disposed of over $1.6 billion of assets in the past seven years,
including $184 million in 2017, we are excited to finally be finished
with dispositions and their dilutive impact to otherwise healthy
results,” stated Stephen E. Budorick, COPT’s President & Chief Executive
Officer. “More than 99% of our assets are now strategic, and our balance
sheet is strong. We will focus exclusively on increasing operating cash
flows and value by aggressively leasing existing assets, and executing
on the expanding set of opportunities to develop low-risk, value-added
projects, primarily in our Defense/IT Locations. The bipartisan support
in Congress to sustain mid-single digit growth in defense spending
should translate into mission growth and new demand for the efficient,
specialized space that is the foundation of our franchise.”

Please refer to the presentation titled “2017 Results & 2018 Initial
Guidance” available on the ‘Investors’ tab of www.copt.com
for more detail.

2018 Guidance Reconciliation Tables

Reconciliations of projected EPS to projected FFOPS, in accordance with
NAREIT and as adjusted for comparability, are as follows:

Table 1: Reconciliation of EPS to FFOPS, per NAREIT and As
Adjusted for Comparability

Quarter EndingMarch 31, 2018

Year EndingDecember 31, 2018

Low

High

Low

High

EPS

$0.13

$0.15

$0.55

$0.65

Real estate depreciation and amortization

0.35

0.35

1.40

1.40

FFOPS per NAREIT definition & as adjusted for comparability

$0.48

$0.50

$1.95

$2.05

Assumptions Underpinning Full Year 2018 Guidance

Table 2 below details assumptions that underpin the Company’s full year
2018 EPS and FFOPS guidance:

Table 2: Supporting Assumptions for 2018 Guidance (a)

Real Estate NOI

Investment Activity

▪ 2018 Same-Property Pool

▪ Development Starts

$325 ‒ $375

▫ % change in cash NOI

(1.0%) ‒ 1.0%

▪ Development Spend (d)

$300 ‒ $325

▫ Year-end occupancy

93% ‒ 94%

▪ Capitalized interest expense

$5.5 - $6.0

▪ NOI from developments (c)

$16 – $17

▪ Acquisitions

N/A

▪ COPT DC-6 cash NOI

$14 – $15

▪ Dispositions

N/A

Other Income

Capital Markets Activity & Balance Sheet Targets

▪ Lease termination fee income

$2.0 − $2.5

▪ Debt Refinance

$300

▪ Interest & other income

$5.5 − $6.5

▪ Equity Funding of Development Spend

65%

▪ Construction fees, net

$2.0 − $2.5

▪ Preferred Shares Redemption

N/A

▪ Net Debt to Adjusted Book ratio

≤ 40%

General and Administrative Costs

▪ Net Debt-to-In-Place Adj. EBITDA ratio

≤ 6.0x

▪ G&A expenses

$22 − $23

▪ Leasing expenses

$7.5 − $8

Lease Expirations (b)

▪ Business development expenses & land carry cost

$5.75 − $6.25

▪ SF expiring (as % of total ann'l revs)

2.1 million SF (14.4%)

▪ Renewal rate

70% ‒ 75%

▪ Cash rental rate ∆ on renewals

(2%) − 0%

AFFO Adjustments & Information

▪ Recurring capital expenditures & tenant improvements

($50 − $53)

▪ Other GAAP adjustments impacting NOI

$3.5 – $4

▪ GAAP straight line rent adjustments

($9.5) – ($9.0)

▪ Dividend / AFFO payout ratio

70% ‒ 75%

▪ Other FFO-AFFO adjustments

$9 – $10

▪ % Increase in AFFO

4% ‒ 6%

a.

Dollars are in millions

b.

Based on the Company's core portfolio, which excludes properties in
its ‘Other’ segment.

c.

This amount represents cash NOI from developments placed into
service during 2017 and 2018, most of which was under executed
leases.

d.

Development spend excludes the value of owned land transferred to
construction.

This amount represents cash NOI from developments placed or to be
placed into service during 2017 and 2018, the majority of which was
associated with executed leases.

c.

Development spend excludes the value of owned land transferred to
construction.

Company Information

COPT is an office REIT that owns, manages, leases, develops and
selectively acquires office and data center properties in locations that
support the United States Government and its contractors, most of whom
are engaged in national security, defense and information technology
(“IT”) related activities servicing what it believes are growing,
durable, priority missions (“Defense/IT Locations”). The Company also
owns a portfolio of office properties located in select urban/urban-like
submarkets in the Greater Washington, DC/Baltimore region with durable
Class-A office fundamentals and characteristics (“Regional Office
Properties”). As of December 31, 2017, the Company derived 88% of core
portfolio annualized revenue from Defense/IT Locations and 12% from its
Regional Office Properties. As of December 31, 2017 and including six
buildings owned through an unconsolidated joint venture, COPT’s core
portfolio of 156 office and data center shell properties encompassed
17.1 million square feet and was 95.1% leased. As of the same date, the
Company also owned one wholesale data center with a critical load of
19.25 megawatts.

Non-GAAP Measures

The Company believes that the measures defined below that are not
determined in accordance with generally accepted accounting principles
(“GAAP”) are helpful to investors in measuring its performance and
comparing it to that of other real estate investment trusts (“REITs”).
Since these measures exclude certain items includable in their
respective most comparable GAAP measures, reliance on the measures has
limitations; the Company’s management compensates for these limitations
by using the measures simply as supplemental measures that are weighed
in balance with other GAAP and non-GAAP measures. These measures should
not be used as an alternative to the respective most comparable GAAP
measures when evaluating the Company’s financial performance or to cash
flow from operating, investing and financing activities when evaluating
its liquidity or ability to make cash distributions or pay debt service.

Adjusted book‒Defined
as total assets presented on the Company’s consolidated balance sheet
excluding the effect of cash and cash equivalents, accumulated
depreciation on real estate properties, accumulated amortization of
intangible assets on real estate acquisitions, accumulated amortization
of deferred leasing costs, disposed properties included in assets held
for sale, unconsolidated real estate joint venture cash and cash
equivalents, liabilities and accumulated depreciation and amortization
(of real estate intangibles and deferred leasing costs) allocable to the
Company’s ownership interest in the joint venture and the effect of
properties serving as collateral for debt in default that was
extinguished (or that it intends to extinguish) via conveyance of such
properties.

Adjusted earnings before interest, income
taxes, depreciation and amortization (“Adjusted EBITDA”)‒Adjusted
EBITDA is net income (loss) adjusted for the effects of interest
expense, depreciation and amortization, impairment losses, gain on sales
of properties, gain or loss on early extinguishment of debt, net gain on
unconsolidated entities, operating property acquisition costs, gain
(loss) on interest rate derivatives, income taxes, business development
expenses, demolition costs on redevelopment properties and executive
transition costs, and excluding the effect of properties that served as
collateral for debt in default that the Company extinguished via
conveyance of such properties. Adjusted EBITDA also includes adjustments
to net income for the effects of the items noted above pertaining to an
unconsolidated real estate JV that was allocable to the Company’s
ownership interest in the JV. While EBITDA (earnings before interest,
taxes, depreciation and amortization) is a universally-defined
supplemental measure, Adjusted EBITDA incorporates additional
adjustments for gains and losses from investing and financing activities
and certain other items that the Company believes are not closely
correlated to (or associated with) its operating performance. The
Company believes that adjusted EBITDA is a useful supplemental measure
for assessing un-levered performance, and believes that net income is
the most directly comparable GAAP measure to adjusted EBITDA.

Basic FFO available to common share and
common unit holders (“Basic FFO”)‒This measure
is FFO adjusted to subtract (1) preferred share dividends, (2) income
attributable to noncontrolling interests through ownership of preferred
units in Corporate Office Properties, L.P. (the “Operating Partnership”)
or interests in other consolidated entities not owned by the Company,
(3) depreciation and amortization allocable to noncontrolling interests
in other consolidated entities, (4) Basic FFO allocable to restricted
shares and (5) issuance costs associated with redeemed preferred shares.
With these adjustments, Basic FFO represents FFO available to common
shareholders and holders of common units in the Operating Partnership
(“common units”). Common units are substantially similar to the
Company’s common shares of beneficial interest (“common shares”) and are
exchangeable into common shares, subject to certain conditions. The
Company believes that Basic FFO is useful to investors due to the close
correlation of common units to common shares, and believes that net
income is the most directly comparable GAAP measure to Basic FFO.

Cash net operating income (“Cash NOI”)‒Defined
as NOI from real estate operations adjusted to eliminate the effects of:
straight-line rental adjustments, amortization of tenant incentives,
amortization of acquisition intangibles included in FFO and NOI
(including above- and below-market leases and above- or below-market
cost arrangements), lease termination fees from tenants to terminate
their lease obligations prior to the end of the agreed upon lease terms
and rental revenue recognized under GAAP resulting from landlord assets
funded by tenants. Cash NOI also includes adjustments to NOI from real
estate operations for the effects of the items noted above pertaining to
an unconsolidated real estate JV that were allocable to the Company’s
ownership interest in the JV. Under GAAP, rental revenue is recognized
evenly over the term of tenant leases (through straight-line rental
adjustments and amortization of tenant incentives), which, given the
long-term nature of its leases, does not align with the economics of
when tenant payments are due to the Company under the arrangements. Also
under GAAP, when a property is acquired, the Company allocates the
acquisition to certain intangible components, which are then amortized
into NOI over their estimated lives, even though the resulting revenue
adjustments are not reflective of the Company’s lease economics. In
addition, revenue from lease termination fees and tenant-funded landlord
improvements, absent an adjustment from the Company, would result in
large one-time lump sum amounts in Cash NOI that the Company does not
believe are reflective of a property’s long-term value. The Company
believes that Cash NOI is a useful supplemental measure of operating
performance for a REIT’s operating real estate because it makes
adjustments to NOI for the above stated items to be more reflective of
the economics of when tenant payments are due under the Company’s leases
and the value of properties. As is the case with NOI, the measure is
useful, in its opinion, in evaluating and comparing the performance of
geographic segments, same-office property groupings and individual
properties. The Company believes that operating income, as reported on
its consolidated statements of operations, is the most directly
comparable GAAP measure to Cash NOI.

Diluted adjusted funds from operations
available to common share and common unit holders (“Diluted AFFO”)‒Defined
as Diluted FFO, as adjusted for comparability, adjusted for the
following: (1) the elimination of the effect of (a) noncash rental
revenues and property operating expenses (comprised of straight-line
rental adjustments, which includes the amortization of recurring tenant
incentives, and amortization of acquisition intangibles included in FFO
and NOI, both of which are described under “Cash NOI” above), (b)
share-based compensation, net of amounts capitalized, (c) amortization
of deferred financing costs, (d) amortization of debt discounts and
premiums and (e) amortization of settlements of debt hedges; and (2)
replacement capital expenditures (defined below). Diluted AFFO also
includes adjustments to Diluted FFO, as adjusted for comparability for
the effects of the items noted above pertaining to an unconsolidated
real estate JV that were allocable to the Company’s ownership interest
in the JV. The Company believes that Diluted AFFO is a useful
supplemental measure of operating performance for a REIT because it
incorporates adjustments for: certain revenue and expenses that are not
associated with cash to or from the Company during the period; and
certain capital expenditures for operating properties incurred during
the period that do require cash outlays. The Company believes that net
income is the most directly comparable GAAP measure to Diluted AFFO.

Diluted FFO available to common share and
common unit holders (“Diluted FFO”)‒Diluted FFO
is Basic FFO adjusted to add back any changes in Basic FFO that would
result from the assumed conversion of securities that are convertible or
exchangeable into common shares. The computation of Diluted FFO assumes
the conversion of common units in the Operating Partnership but does not
assume the conversion of other securities that are convertible into
common shares if the conversion of those securities would increase
Diluted FFO per share in a given period. The Company believes that
Diluted FFO is useful to investors because it is the numerator used to
compute Diluted FFO per share, discussed below. The Company believes
that net income is the most directly comparable GAAP measure to Diluted
FFO.

Diluted FFO available to common share and
common unit holders, as adjusted for comparability (“Diluted FFO, as
adjusted for comparability”)‒Defined as Diluted
FFO or FFO adjusted to exclude: operating property acquisition costs;
gains on sales of, and impairment losses on, properties other than
previously depreciated operating properties; gain or loss on early
extinguishment of debt; FFO associated with properties that secured
non-recourse debt on which it defaulted and, subsequently, extinguished
via conveyance of such properties (including property NOI, interest
expense and gains on debt extinguishment); loss on interest rate
derivatives; demolition costs on redevelopment properties; executive
transition costs (including separation related compensation and
replacement recruitment costs for Vice President level positions and
above); and accounting charges for original issuance costs associated
with redeemed preferred shares. Diluted FFO, as adjusted for
comparability also includes adjustments to Diluted FFO for the effects
of the items noted above pertaining to an unconsolidated real estate JV
that were allocable to the Company’s ownership interest in the JV. The
Company believes this to be a useful supplemental measure alongside
Diluted FFO as it excludes gains and losses from certain investing and
financing activities and certain other items that the Company believes
are not closely correlated to (or associated with) operating
performance. The adjustment for FFO associated with properties securing
non-recourse debt on which the Company defaulted pertains to the periods
subsequent to default on the loan’s payment terms, which was the result
of the Company’s decision to not support payments on the loan since the
estimated fair value of the properties was less than the loan balance.
While the Company continued as the legal owner of the properties during
this period, all cash flows produced by them went directly to the lender
and the Company did not fund any debt service shortfalls, which included
incremental additional interest under the default rate. The Company
believes that net income is the most directly comparable GAAP measure to
this non-GAAP measure.

Diluted FFO per share‒Diluted
FFO per share is (1) Diluted FFO divided by (2) the sum of the (a)
weighted average common shares outstanding during a period, (b) weighted
average common units outstanding during a period and (c) weighted
average number of potential additional common shares that would have
been outstanding during a period if other securities that are
convertible or exchangeable into common shares were converted or
exchanged. The computation of Diluted FFO per share assumes the
conversion of common units in the Operating Partnership but does not
assume the conversion of other securities that are convertible into
common shares if the conversion of those securities would increase
Diluted FFO per share in a given period. The Company believes that
Diluted FFO per share is useful to investors because it provides
investors with a further context for evaluating FFO results in the same
manner that investors use earnings per share (“EPS”) in evaluating net
income available to common shareholders. The Company believes that
diluted EPS is the most directly comparable GAAP measure to Diluted FFO
per share.

Diluted FFO per share, as adjusted for
comparability‒Defined as (1) Diluted FFO available to
common share and common unit holders, as adjusted for comparability
divided by (2) the sum of the (a) weighted average common shares
outstanding during a period, (b) weighted average common units
outstanding during a period and (c) weighted average number of potential
additional common shares that would have been outstanding during a
period if other securities that are convertible or exchangeable into
common shares were converted or exchanged. The computation of this
measure assumes the conversion of common units in the Operating
Partnership but does not assume the conversion of other securities that
are convertible into common shares if the conversion of those securities
would increase the per share measure in a given period. The Company
believes this to be a useful supplemental measure alongside Diluted FFO
per share as it excludes gains and losses from investing and financing
activities and certain other items that it believes are not closely
correlated to (or associated with) operating performance. The Company
believes that diluted EPS is the most directly comparable GAAP measure.

Funds from operations (“FFO” or “FFO per
NAREIT”)‒Defined as net income computed using
GAAP, excluding gains on sales of, and impairment losses on, previously
depreciated operating properties and real estate-related depreciation
and amortization. When multiple properties consisting of both operating
and non-operating properties exist on a single tax parcel, the Company
classifies all of the gains on sales of, and impairment losses on, the
tax parcel as all being for previously depreciated operating properties
when most of the value of the parcel is associated with operating
properties on the parcel. FFO also includes adjustments to net income
for the effects of the items noted above pertaining to an unconsolidated
real estate JV that were allocable to the Company’s ownership interest
in the JV. The Company believes that it uses the National Association of
Real Estate Investment Trust’s (“NAREIT”) definition of FFO, although
others may interpret the definition differently and, accordingly, its
presentation of FFO may differ from those of other REITs. The Company
believes that FFO is useful to management and investors as a
supplemental measure of operating performance because, by excluding
gains related to sales of, and impairment losses on, previously
depreciated operating properties and excluding real estate-related
depreciation and amortization, FFO can help one compare operating
performance between periods. The Company believes that net income is the
most directly comparable GAAP measure to FFO.

In-place adjusted EBITDA‒Defined
as Adjusted EBITDA, as further adjusted for: (1) the removal of NOI
pertaining to properties in the quarterly periods in which such
properties were sold; and (2) the addition of pro forma adjustments to
NOI for properties acquired or placed into service subsequent to the
commencement of a quarter made in order to reflect a full quarter of
ownership/operations. The measure also includes adjustments to Adjusted
EBITDA for the effects of the items noted above pertaining to an
unconsolidated real estate JV that were allocable to the Company’s
ownership interest in the JV. The Company believes that in-place
adjusted EBITDA is a useful supplemental measure of performance for
assessing unlevered performance, as further adjusted for changes in
operating properties subsequent to the commencement of a quarter. The
Company believes that net income is the most directly comparable GAAP
measure to in-place adjusted EBITDA.

Net debt‒Defined as
Gross debt (total outstanding debt reported per the Company’s balance
sheet as adjusted to exclude net discounts and premiums and deferred
financing costs), as adjusted to subtract cash and cash equivalents as
of the end of the period and debt in default that was extinguished via
conveyance of properties. The measure also includes adjustments to Gross
debt for the effects of the items noted above pertaining to an
unconsolidated real estate JV that were allocable to the Company’s
ownership interest in the JV.

Net debt to in-place adjusted EBITDA ratio
and Net debt plus preferred equity to in-place adjusted EBITDA ratio‒Defined
as either Net debt (defined above), or Net debt plus preferred equity,
divided by in-place adjusted EBITDA (defined above) for the three month
period that is annualized by multiplying by four.

Net operating income from real estate
operations (“NOI”)‒NOI, which is a segment
performance measure, includes: consolidated real estate revenues;
consolidated property operating expenses; and the net of revenues and
property operating expenses of real estate operations owned through an
unconsolidated real estate JV that is allocable to COPT’s ownership
interest in the JV. The Company believes that NOI is an important
supplemental measure of operating performance for a REIT’s operating
real estate because it provides a measure of the core real estate
operations that is unaffected by depreciation, amortization, financing
and general, administrative and leasing expenses; the Company believes
this measure is particularly useful in evaluating the performance of
geographic segments, same-office property groupings and individual
properties. The Company believes that operating income, as reported on
its consolidated statements of operations, is the most directly
comparable GAAP measure to NOI.

Payout ratios based on: Diluted FFO; Diluted
FFO, as adjusted for comparability; and Diluted AFFO‒These
payout ratios are defined as (1) the sum of (a) dividends on
unrestricted common shares and (b) distributions to holders of interests
in the Operating Partnership and dividends on convertible preferred
shares when such distributions and dividends are included in Diluted FFO
divided by (2) the respective non-GAAP measures on which the payout
ratios are based.

Replacement capital expenditures‒Replacement
capital expenditures are defined as tenant improvements and incentives,
building improvements and leasing costs incurred during the period for
operatingproperties that are not (1) items contemplated prior to
the acquisition of a property, (2) improvements associated with the
expansion of a building or its improvements,(3) renovations to a
building which change the underlying classification of the building (for
example, from industrial to office or Class C office to Class B office)
or(4) capital improvements that represent the addition of
something new to the property rather than the replacement of something
(for example, the addition of a new heatingand air conditioning
unit that is not replacing one that was previously there). Replacement
capital expenditures excludes expenditures of operating properties
included indisposition plans during the period that were already
sold or are held for future disposition. The measure also includes
replacement capital expenditures of anunconsolidated real estate
JV that were allocable to the Company’s ownership interest in the JV.
For cash tenant incentives not due to the tenant for a period exceeding
three monthspast the date on which such incentives were
incurred, the Company recognizes such incentives as replacement capital
expenditures in the periods such incentives are due to the tenant.Replacement
capital expenditures, which is included in the computation of Diluted
AFFO, is intended to represent non-transformative capital expenditures
of existingproperties held for long-term investment. The Company
believes that the excluded expenditures are more closely associated with
its investing activities than the performance of itsoperating
portfolio.

Same-Property NOI and Same-Property Cash NOI‒Defined
as NOI, or Cash NOI, from real estate operations of Same-Properties. The
Company believes that these are important supplemental measures of
operating performance of Same-Properties for the same reasons discussed
above for NOI from real estate operations and Cash NOI.

Forward-Looking Information

This press release may contain “forward-looking” statements, as
defined in Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, that are based on the Company’s
current expectations, estimates and projections about future events and
financial trends affecting the Company. Forward-looking statements can
be identified by the use of words such as “may,” “will,” “should,”
“could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other
comparable terminology.Forward-looking statements are inherently
subject to risks and uncertainties, many of which the Company cannot
predict with accuracy and some of which the Company might not even
anticipate.Accordingly, the Company can give no assurance that
these expectations, estimates and projections will be achieved.Future
events and actual results may differ materially from those discussed in
the forward-looking statements.

Important factors that may affect these expectations, estimates, and
projections include, but are not limited to:

general economic and business conditions, which will, among other
things, affect office property and data center demand and rents,
tenant creditworthiness, interest rates, financing availability and
property values;

adverse changes in the real estate markets including, among other
things, increased competition with other companies;

governmental actions and initiatives, including risks associated
with the impact of a prolonged government shutdown or budgetary
reductions or impasses, such as a reduction in rental revenues,
non-renewal of leases, and/or a curtailment of demand for additional
space by the Company's strategic customers;

the Company’s ability to borrow on favorable terms;

risks of real estate acquisition and development activities,
including, among other things, risks that development projects may not
be completed on schedule, that tenants may not take occupancy or pay
rent or that development or operating costs may be greater than
anticipated;

risks of investing through joint venture structures, including
risks that the Company’s joint venture partners may not fulfill their
financial obligations as investors or may take actions that are
inconsistent with the Company’s objectives;

changes in the Company’s plans for properties or views of market
economic conditions or failure to obtain development rights, either of
which could result in recognition of significant impairment losses;

the Company’s ability to satisfy and operate effectively under
Federal income tax rules relating to real estate investment trusts and
partnerships;

possible adverse changes in tax laws;

the Company's ability to achieve projected results;

the dilutive effects of issuing additional common shares; and

environmental requirements.

The Company undertakes no obligation to update or supplement any
forward-looking statements. For further information, please refer to the
Company’s filings with the Securities and Exchange Commission,
particularly the section entitled “Risk Factors” in Item 1A of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2016.